RBNZ Ups OCR 50bps to 3.0%; Highlights Broad-Based Pricing Pressures

By Sophia Rodrigues

(Sydney, August 17, 2022)—The Reserve Bank of New Zealand raised the official cash rate by 50 basis points to 3.0% and reiterated its hawkish message by bringing forward the timing of further OCR increases.

The RBNZ is now forecasting the OCR to reach a peak of 4.1% by June 2023, up from a peak of 3.9% projected in May. Importantly, it expects the OCR to touch 3.7% by December from 3.4%, indicating it is prepared to raise the rate by 50bps at least once more this year.

The hawkish message was in reaction to “too high” core consumer price inflation and scarce labor resources.

The RBNZ said it was encouraged by declines in survey measures of inflation expectations but remains alert to the risk of a more pronounced change in wage and price setting behaviour.

“A range of indicators highlight broad-based domestic pricing pressures,” the RBNZ said.

The RBNZ said domestic spending has remained resilient to global and local headwinds to date. “Spending levels are supported by a robust employment level, continued fiscal support, an elevated terms of trade, and sound household balance sheets in aggregate.”

But production was constrained by acute labour shortages, heightened by seasonal and COVID-19 related illnesses.

In terms of forecasts, the RBNZ expects housing prices to fall 16% compared with the 14% forecast in May. It is also projecting the unemployment rate to rise to 5% by March 2025 compared with a forecast of 4.7% in May.

--Contact: Sophia@centralbankintel.com